Digital Assets and Financial Inclusion: How the Marshall Islands is Pioneering a New Approach to Universal Basic Income

The Republic of the Marshall Islands is reshaping its financial infrastructure through an innovative government-backed digital asset program. Rather than relying on traditional banking systems that have largely abandoned the island nation, the country is leveraging blockchain technology to ensure citizens can access, receive, and utilize universal basic income payments. The recent rollout of USDM1, distributed through Lomalo—a Stellar-powered digital wallet—represents a significant shift in how island nations can address financial exclusion.

According to Paul Wong, director of special projects at the Stellar Development Fund (SDF), the initiative demonstrates how governments can create dual-purpose financial instruments without resorting to conventional stablecoins. “Unlike a stablecoin, where the issuer is actually earning yield, in this case, the asset holder is earning yield,” Wong explained. This distinction positions USDM1 as an asset holder-friendly instrument—more akin to a money market fund—where eligible citizens earn returns on their quarterly disbursements.

A Government-Backed Digital Solution for Underserved Communities

The USDM1 token functions as a fully collateralized sovereign bond, providing Marshall Islands residents with both a store of value and a medium of exchange. The critical innovation lies in its design philosophy: simplicity over complexity. Crossmint, the enterprise blockchain platform that developed Lomalo, intentionally removed features that have become standard in cryptocurrency applications, such as seed phrases and complex authentication dialogs.

“All they care about is whether there’s money in their account,” noted Rodri Fernandez Touza, Crossmint’s co-founder. The platform was built on the principle that public financial services must be accessible to users without technical expertise. By managing user credentials behind the scenes, Crossmint eliminates barriers that would otherwise prevent mainstream adoption.

The quarterly distribution model provides Marshall Islands authorities with a structured approach to implementing universal basic income. For a nation that is already dollarized—relying on US currency as its standard medium of exchange—this digital overlay creates an opportunity to modernize financial infrastructure while maintaining currency stability.

Why Physical Cash Became the Default in the Marshall Islands

Understanding the rationale behind Marshall Islands’ adoption of USDM1 requires examining the region’s banking history. Following the 2008 global financial crisis, several international banks withdrew correspondent banking relationships with the island nation. These institutions determined that the risk-return profiles associated with the Marshall Islands no longer justified maintaining service relationships.

The consequences have been severe. Today, the Marshall Islands operates with only a single correspondent bank providing essential services such as domestic wire transfers. Physical cash remains the de facto currency, often arriving by shipping container rather than through electronic transfers. Citizens frequently must travel significant distances across the archipelago—which covers an area comparable to Mexico—to access basic banking services or cash checks.

“If they were to lose that correspondent bank, it would be disconnected from the global financial system,” Wong observed. For vulnerable populations relying on government transfers, this dependency creates genuine hardship. Empty ATMs, overextended supply chains, and geographical barriers mean that accessing one’s own money often requires substantial time and resource investment.

Paradoxically, while physical infrastructure remains constrained, digital infrastructure has improved substantially. SpaceX’s Starlink satellite internet service has expanded connectivity across the island nation, making digital financial services technically feasible where traditional banking infrastructure proved uneconomical.

Reimagining Public Finance Through Blockchain Technology

The USDM1 model addresses infrastructure gaps while introducing a sovereign bond approach that differs meaningfully from typical cryptocurrency arrangements. By tying the asset to government-backed collateral, the Marshall Islands creates a financial instrument with predictable value and yield generation—avoiding the volatility and depegging risks associated with traditional stablecoins.

The SDF, having funded this initiative through multi-million-dollar grants, has applied lessons learned from previous projects. In Ukraine, the SDF collaborated with the government and humanitarian organizations to establish aid distribution systems built on Circle’s USDC stablecoin, beginning in 2021. That experience informed how USDM1 was designed with individual recipients as the sole beneficiary of digital funds.

This structural distinction carries profound social implications. In communities where historical power dynamics have concentrated financial control among dominant household members, individual asset ownership fundamentally alters economic agency. “That risk of physical threat is much lower,” Wong noted. “When you distribute universal basic income to a woman, it’s not going to some joint account where, historically, a man has used it for purposes other than the family.”

Global Expansion of a Marshall Islands Innovation

The Marshall Islands initiative extends the SDF’s broader mandate to expand financial access in geopolitically challenged and economically underserved regions. The organization is currently collaborating with the German government to support healthcare worker payroll distribution systems across the Middle East. Simultaneously, partnerships with the United Nations Development Programme indicate that sovereign bond digital asset models may scale beyond the Marshall Islands context.

The project demonstrates that blockchain technology, when deployed thoughtfully, can address real financial inclusion challenges rather than serving primarily as a speculative asset class. For island nations, developing economies, and communities underserved by traditional banking infrastructure, the Marshall Islands model offers both a technical blueprint and a policy proof-of-concept—showing that governments can provide modern financial services using decentralized technology without sacrificing user accessibility or financial stability.